Who will profit from stem cell investment?
Cast your mind back to September 2004. Hollywood actors, Nobel laureates and patient advocates were urging voters to approve a $3 billion bond package for stem cell research. To counter concerns that a cash-strapped state couldn't afford to loan $3 billion ($6 billion with interest), proponents commissioned a study to buttress their claim that Proposition 71 would produce an economic windfall.
The study, conducted by a Stanford University professor and a consulting firm, the Analysis Group Inc., concluded that Proposition 71 would save billions of dollars in health care costs and provide the state with $537 million to $1.1 billion in direct royalties from new stem cell therapies. Two months later, nearly 60 percent of voters approved the initiative.
Now return to the present. Legislators and public interest groups, excited about the potential of stem cell research, are insisting on licensing agreements that will ensure that California gets its promised benefits, either through royalties or discounted therapies. This is reasonable. Californians should expect something from a $3 billion investment that likely will make some companies very rich.
Suddenly, however, Proposition 71 supporters are doing a flip-flop. Biotech firms and university officials are saying that royalties and discounted care would discourage "innovation" and diminish the potential for medical breakthroughs. To drive home this point, they are now throwing cold water on the idea that stem cell research will be very profitable.
"Californians have unrealistically optimistic expectations about the likely financial returns to the state from its investment," said the Californian Council on Science and Technology in an interim report Tuesday. "Some statements about these returns verge on hyperbole."
The CCST report is significant for several reasons. First, the council is composed of leading biotech executives and university bigwigs, a group that hasn't previously acknowledged that Proposition 71 was oversold to voters. Second, it represents an attempt by biotech leaders to have it both ways. Back in 2004, they campaigned for an initiative that will provide their industry with $3 billion in taxpayer-funded venture capital. Now that it is law, they issue an official-sounding report that recommends California give up on royalties - negating some of the arguments that helped get Proposition 71 passed.
California needs to have some measure of control over the intellectual property it has agreed to finance. These policies need to balance the public interest with the realities that California is competing against other countries to advance stem cell research. These policies should draw from the Bayh-Dole Act, a federal law that manages patents and licensing, while acknowledging that California's stem cell program - which depends on tax-exempt bonds - is a unique animal.
The issues of royalties and tax-exempt bonds are directly related. Recently, state Sen. Deborah Ortiz, D-Sacramento, and other lawmakers have learned that California faces obstacles in issuing tax-exempt bonds for certain stem cell grants. In a May 23 letter to state Treasurer Phil Angelides, the state's bond counsel warned that patents and royalties resulting from state grants might be construed as taxable "assets," making them ineligible for financing by tax-exempt bonds.
Apparently, Angelides and leaders of the stem-cell institute have known about these challenges for some time, but haven't said anything. To flush out this issue, this page filed an open records request for all memos written by the treasurer's bond counsel on Proposition 71 prior to its passage. Angelides rejected those requests, citing attorney-client privilege.
Lawmakers must take a more active role if the state is to devise a fair and workable policy. To start with, legislators need to press Angelides to release all documents on the bond implications of funding certain grants. Then they need to convene a new expert panel - one that is more inclusive and wide-ranging than the CCST - to recommend policies on intellectual property.
Ortiz has proposed such a panel, and lawmakers should support her. It's an essential step if the $3 billion Californians agreed to spend on stem cell research is to be an investment rather than a gift.
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